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Both asset allocation and stock selection in Hong Kong were negative contributors. Core holding Jardine Strategic posted a 6.5% decline in local-currency terms as the Indonesian rupiah fell to its lowest level since the Asian financial crisis on the back of the indiscriminate sell-off in emerging-market currencies. We continue to hold the view that Indonesia today is fiscally sturdier than compared to the crisis in 1997. The government is also committed to reform: it recently announced the complete removal of gasoline subsidies. Jardine Strategic’s subsidiary Astra International is one of the largest conglomerates in Indonesia with interests spanning banking to plantations. Elsewhere, our holding Japan Tobacco detracted on concerns over its exposure to the Russian market.

On a positive note, core Singapore holdings United Overseas Bank and property developer City Developments added to performance, as did the overweight to Singapore. While we do not see a rebound in Singapore’s residential property sector in the near term, this has been reflected in the stock prices. City Developments trades at an attractive 30% discount to its net asset value. Elsewhere, Japanese firm Unicharm was another contributor, as signs of a recovery in its China business boosted optimism over the company’s prospects. Meanwhile, Japanese camera and office equipment maker Canon gained on the back of a 15% hike in its dividend forecast to reflect a stable business environment.

Aberdeen Asset Management (Glasgow) – Jamie Cumming

Ethical

In December, the fund’s value fell by 1.70%, marginally underperforming the benchmark’s decline of 1.39%. Asset allocation and the currency impact were negative, while stock selection was positive.

Our Brazilian holdings such as Banco Bradesco and Petrobras cost the fund the most. Brazilian stocks suffered amid the escalating political scandal and the currency was also weak. We have since sold out of our position in Petrobras, owing to concerns over its deteriorating business quality and ability to pay its debt.

Against this, our US holdings such as EOG Resources and Oracle Corp were the top contributors to relative return, buoyed by the Federal Reserve’s supportive stance as well as improved economic data. In particular, Oracle Corp benefited from better-than-expected profits for the second quarter, driven by efforts to develop web-based cloud computing.

In portfolio activity, we sold the aforementioned Petrobras.

Artemis Investment Management – Adrian Frost & Adrian Gosden

UK & International Income

Stock markets rounded off the year in a negative and somewhat disorderly fashion and the UK market fell by 1.6% over the month, leaving it barely positive for 2014.

The relentless decline in oil and commodity prices had a disproportionate impact on the FTSE 100 given its sector mix. This meant that the FTSE 250 became something of a ‘safe haven’ and as a result it proved more resilient, so much so that over the year it has outperformed the FTSE 100 again.

The rout in commodity prices led commentators to mark to market when valuing the affected stocks, and furthermore there was a tendency to compress the future into a 3 month view. However, it is possible that as we write, these lower prices are suppressing supply and stimulating demand which will have a restorative effect in time. Nonetheless, the threat to dividends is real but is to a degree discounted by current yield levels and so having reduced in November we took no further action.

In general, we used market volatility to add to existing positions the most notable being Vodafone, General Electric, and Rio Tinto. We chose to sell the holding of TDC, which has rallied 20% from its lows precipitated by a dividend cut and acquisition.

Artisan – Dan O’Keefe & David Samra

Global Managed & Global Unit Trust

The MSCI All Country World Index declined 1.0% in December (all returns in local currency). The decline was led by Europe and emerging markets, which fell 2.1% and 2.5%, respectively. Both the US and Japan were roughly flat. Within Europe, some familiar patterns began to re-emerge. Greece is back in the headlines, as the pending election once again raises the possibility for its exit from the European Union. The prospect for contagion meant that the “PIGS” were the worst performing markets in Europe—with Portugal down 7.8%; Italy down 5.4%; Greece down 16.1%; and Spain falling 4.4%.

Nearly all global currencies weakened compared to the US dollar during the month. The Euro declined 2.9%, as a weak macro environment increased the prospect for more meaningful central bank intervention. The currencies of many commodity-centric nations were especially weak. Ten currencies declined more than 4% versus the US dollar—led by an 18% devaluation of the Russian ruble, which has collapsed by 45% over the past year.

Among the largest contributors to performance this month were Oracle and Samsung Electronics. Oracle rose 6% after reporting fiscal second quarter earnings that showed good organic growth in revenues, as well as significant progress in its cloud-based businesses. Samsung announced a special dividend which will increase this year’s payout by 30%-50%. This comes after the announcement of a $2 billion share repurchase in November. Although capital return at Samsung remains meagre (approximately 15% payout, 1.5% yield), it is a step in the right direction.

The biggest detractors from performance during December were ING Groep and Carlsberg. There was no company-specific news that drove the 9.2% decline in ING’s share price. The decline in Carlsberg shares was related to the issues in Russia, where the company earns around 25% of its profits.

Valuations remain persistently high for most of the individual securities we look at. That said, volatility can provide opportunity, and the recent rout in oil prices has created dislocations in the share prices of many energy companies. Our team is busy prospecting for investment opportunities which are both truly undervalued and have the balance sheet strength to sustain an extended period of low oil prices.

AXA Framlington – Richard Peirson

AXA Framlington Managed & Balanced Managed Unit Trust

December was a dull month for equities as the collapsing oil price caused investors to worry about deflation and that it indicated slower global growth, rather than concentrate on the benefits for consumers and companies. The resources stocks were weak as were the services companies that depend on healthy exploration and production activity. European equities and the euro were also hit by worries about the imminent election in Greece. In the UK we saw significant profit-taking in pharmaceuticals, the sector which had been the best performer in 2014. Government bond yields fell again (increasing prices) as the inflation outlook improved and the prospect of higher interest rates in the US and UK looked even further away.

Our stock selection in equities was generally good for we outperformed the benchmarks in the UK, US, Europe and Japan and only underperformed in Emerging Markets. Our positioning in bonds, however, was poor for we were very underweight, particularly in overseas bonds, and we were also too cautious and underperformed significantly against the relevant benchmarks.

The factors responsible for December’s weakness in equities continue in focus in January while in the UK politics is also influencing sentiment negatively. We can see few obvious catalysts for a better tone in the short term but we still consider equities more attractive over the longer term. We don’t expect a new government in Greece to precipitate a break-up of the euro, while some form of QE in Europe would be good for sentiment but take time to be introduced.

AXA Framlington – George Luckraft

Diversified Income & Allshare Income Unit Trust

Markets were very volatile in December with a plunging oil price continuing to trouble investors. The announcement of an election in Greece in January raised concerns re their continued commitment to the Euro. Defensive stocks such as the tobaccos and pharmaceuticals saw some profit taking following a good period of strength.

The portfolio held up well during the period outperforming a weaker market. Strength in stocks such as Cineworld, Senior and HellermannTyon helped performance. The holdings of National Grid and New River Retail were increased while those of Cineworld and Microfocus were reduced.

Developments in Europe and the oil market will dominate markets. The deflationary pressures arising from the weak oil price should put back the expected date of the first increase of the interest rates. This will continue to mean that investors will seek out safe high yield equities.

Babson Capital – Zak Summerscale

International Corporate Bond

December was a tale of two halves in the high yield market. Indiscriminate selling was witnessed in the early stages of the month amidst a declining headline oil price. This was followed by a more positive market environment, which prevailed for the remainder of the month with bond prices recovering as volatility eased across global markets. The International Corporate Bond Fund was not immune to the turbulence and posted a negative return for the month, although senior secured bonds were more insulated relative to the broader high yield bond market.

The 2014 primary market reached record levels in Europe with secured bond issuance exceeding €33bn and overall high yield issuance reaching in excess of €70bn. Despite the relatively light levels of primary issuance in December, overall high yield issuance for 2014 in the U.S. came in at $356bn, close to the record level of $399bn reached in 2013. This positive market activity contributed to providing attractive new sources of deal flow for the International Corporate Bond Fund to participate in. The top contributors for the International Corporate Bond Fund in December included Brakes, a leading supplier to the foodservice sector in the UK, Ireland, France and Sweden; Prospect Medical Holdings Inc, a U.S. provider of co-ordinated regional healthcare services; and Keepmoat a UK sustainable redeveloper. Negative performers over the month included Takko, a German value fashion retailer; Welltec, a Danish developer and provider of technology and solutions for the oil and gas industry; and Shelf Drilling Holdings Ltd, a provider of shallow water drilling services worldwide.

In December the European high yield bond market outperformed the U.S. market, further buoyed by talk of a potential large scale asset purchase plan by the ECB along with diminishing contagion from falling oil prices. We believe the International Corporate Bond Fund is well positioned to start off 2015 by taking advantage of any potential opportunities to pick up strong credits where the price may have dislocated from the underlying credit fundamentals. The Fund continues to invest in a robust, diverse set of holdings to provide investors with attractive risk-adjusted returns.

BlackRock – Market Advantage team

Alternative Assets

During the fourth quarter, volatility returned to financial markets, with a short but intense sell off across markets in October, followed by a sharp decline in oil prices through November and December. Economic data during the period indicated a continuation of multi-speed growth. In the US, GDP growth in the 3rd quarter rose above expectations to 5% annualised. While the unemployment rate has fallen and indicators continue to improve, minutes from the November FOMC meeting acknowledged potential headwinds from Asia and Europe, and maintained that any increase in rates remains data dependent. In contrast, European inflation slipped as energy costs fell, and the European Commission cut its eurozone growth forecast for 2014. With forward looking indicators also falling and interest rates already close to zero, European news flow continues to revolve around the potential for broad-based quantitative easing early next year. Fresh fears around a Greek exit from the eurozone also resurfaced in December with calls for a snap presidential election and comments on debt sustainability. In the UK, although unemployment dropped to 6.0% and indicators continue to point to recovery, persistently low inflation led the Bank of England to keep interest rates unchanged. Japanese Q3 GDP fell 1.6%, putting the country back into recession. The Bank of Japan (BoJ) opted to maintain quantitative easing measures. In emerging markets, Chinese data deteriorated further with the HSBC Flash Manufacturing PMI falling to its lowest level in six months and weaker inflation data. In response, the People’s Bank of China cut interest rates by 0.4%. Falling oil prices meant poor performance from Latin American equities, while Russian markets were cushioned somewhat by a simultaneous depreciation of the rouble (versus the US dollar).

UK equities have displayed volatility over the year delivering modest positive returns for investors at an index level. This volatility has continued in the fourth quarter when equities fell sharply in response to concerns around global economic growth, the US Federal Reserve ceasing asset purchases and weak economic data from Europe, before recovering as the European Central Bank (ECB) reassured markets leading to the expectation of further stimulus and stronger than expected employment data from the US.

OPEC's decision to leave oil production levels unchanged marked a key event for the oil price, which fell sharply following the news and impacted oil related companies.

Within the portfolio relative performance was strong, with a number of companies providing positive contributions including Reed Elsevier, Wolseley, Compass, Johnson Matthey, Berkeley Group and Next. The common factor linking these companies across their diverse sectors is that they have met or exceeded investor expectations for earnings growth at a time when global economic growth remains modest. Reed Elsevier, for example has demonstrated the benefits of its consistent strategy, producing revenue growth and margin expansion whilst returning excess capital to shareholders.

The fall in the oil price benefited relative performance in two ways, firstly via easyJet through reduced fuel costs with the group continuing to gain market share and also from the overall underweight exposure to the oil & gas sector, where the negative impact from holding BG Group was more than offset by not holding BP or Royal Dutch Shell.

The main detractor to returns was Standard Chartered, which announced disappointing earnings as the bank continued to experience greater competition in local markets and a rise in loan impairments.

Equity markets have re-rated higher over the past couple of years and we expect inflation expectations and global economic growth to remain muted. We believe this environment is suited to our strategy of investing for the long term through a concentrated but economically diversified portfolio of best ideas that aims to identify high quality companies exposed to areas of growth and those companies able to positively impact earnings through self-help.

BlackRock – Global Index team

Global Equity

Global equities ended 2014 on a negative note with declines across developed and emerging markets in December. Sharply falling oil prices and renewed instability in the Eurozone bought on by snap elections in Greece and concerns over deflationary signs in the broader economy. The markets regained some poise in the second half of the month as the Federal Reserve indicated that it would be patient with regards to interest rate rises, generally expected by the market in 2015.

Despite falls across most market groups, the emerging markets observed more difficulties in December with significant declines. Russia & Brazil declined over 20% & 8% respectively on the back of their reliance on oil & gas exports – crude oil declined by 20% in December to end the month at $53 per barrel. US was one of the few markets that gained in December reflecting the comparative strength of its economy.

The fund’s MSCI benchmark saw the introduction of several new constituents following new market listings and corporate events. Among these were Hermes International, which gained entry to the MSCI universe following the distribution of large stakes in the luxury goods maker by LVMH & Christian Dior. Other new news included Medibank Private, following a privatisation of the private health insurer by the Australian government and Chiel Industries, which was newly listed in Korea as the Lee family continued their reorganization of their control of the Samsung empire of companies.

The equal weighted portfolio strategy declined by 1.77% during December, against a benchmark return of -1.87%. The market capitalisation weighted index return for MSCI All Countries Weighted Index was -1.89% in December.

Edgepoint – Tye Bousada

Global Equity

The fourth quarter coincided with a sharp decline in oil prices contributing to increased volatility in equity markets. On the downside, oil producers are re-examining their capital expenditure priorities. On the upside, consumers of oil look to an improving business environment due to declining input costs. While the decline in oil prices will hurt certain net-exporting countries as well as oil producers, the lower oil price environment is generally good news for the global economy and the investing landscape.

During the quarter the Portfolio benefited from the strong performance of holdings such as: TE Connectivity Ltd., AMN Healthcare Services Inc., WABCO Holdings Inc., Ryanair Holdings PLC and Merit Medical Systems Inc. These investments represent high-quality businesses that are leaders in their respective industries with strong management and defendable barriers to entry. Most importantly, we believe we have a unique proprietary insight into each of these businesses that is not being properly recognized.

Ryanair is a case in point of our proprietary insight. Ryanair has demonstrated ambitious plans for growth such as: increasing their capacity utilization by becoming more customer-friendly and developing ancillary revenue streams by offering on-board broadband, last minute flight cancellation and early boarding privileges to business class passengers. Despite strong performance, we believe Ryanair continues to represent good value.

First State – Jonathan Asante

Worldwide Managed

Concerns about monetary and fiscal policies, Ebola, political tensions and plunging commodity prices were just some of the issues investors faced in 2014. However, continued optimism about a US economic recovery pushed global stock markets to new highs. While a recovery in US economic data is undeniable, it remains to be seen how resilient the recovery will be in the face of rising interest rates, as and when this happens. Furthermore, as the US government begins to address its debt level, a major source of demand is likely to shrink. At a stock level, Unicharm (Japan: Consumer Staples) rose as recent results indicated that sales were holding up well across most regions, and could be improving in China, which is a difficult market. Chubb Corp (US: Financials) performed well due to continued momentum from positive results across commercial, personal and special insurance. Baxter International (US: Health Care) gained as investors focused on the ‘new Baxter’ and the potential value this could create. On the negative side, Bank Pekao (Poland: Financials) was weak due to unexciting results and Unilever (UK: Consumer Staples) declined because consumers remain cautious and the pricing environment is subdued. Henkel (Germany: Consumer Staples) fell as management’s tone was cautious, highlighting the tough economic backdrop.

Invesco Perpetual – Paul Read & Paul Causer

Corporate Bond

European bond markets delivered a positive return through December with performance once again skewed toward higher quality bonds. Falling inflation expectations driven by the continuing decline in crude oil prices helped to drive government bond yields lower, which in turn benefitted corporate bonds. The US high yield market, which has a significant weighting to energy companies, continued to come under pressure from the falling oil price. Focusing on Europe, banks took up just €130bn of cheap loans through the second tranche of the European Central Bank’s (ECB) targeted longer term refinancing operation. This figure was below estimates and increases pressure on the ECB to implement quantitative easing. Political risk in Greece increased as the Greek government failed to win enough support for its Presidential candidate, Mr Dimas, forcing a general election. Supply in the European high yield market was relatively quiet with Barclays estimating issuance of €2.3bn across all currencies in December 2014. According to dataz from Merrill Lynch, European currency high yield bonds had a total return of -0.2% with BB rated bonds returning 0.1% and CCC and below -3.0%. BBB rated bonds euro corporate bonds returned 0.2%. (All in Sterling hedged returns).

Fund Strategy

High yield bond yields remain low by historical standards. But they remain relatively high compared to the yields available on core government bonds, like Gilts and Bunds. In terms of positioning, our exposure is skewed toward higher quality well established high yield names, predominately rated BB. One sector we do still like is financials, notably banks, where we think aggregate yields offer value relative to the wider market. In our view, ongoing structural and regulatory reform should continue to be supportive of subordinated bank debt. Our strategy is relatively defensive. The fund has a sizable allocation to liquid assets, including cash. This positions the fund to react quickly as market opportunities arise.

Portfolio Activity

Portfolio activity was relatively quiet through December with overall positioning broadly unchanged. New positions in Constellium 8.0% 15/01/2023 (Metal Producer) and Constellium 7.0% 15/01/2023 (Metal Producer) were the only additions to the portfolio.

Invesco Perpetual – GTR team

Multi Asset

The fund had a strong end to the year. In the interest rates space, our US long duration idea continued to perform well as, despite the economy’s relative strength, longer term doubts still linger around low inflation and sustainability in the light of weakness elsewhere. In Japan, our flattener idea also continued to contribute as extra stimulus saw the gap between the yield on the 20-year and 10-year interest rate swaps narrow. Our long US dollar positions versus the euro and the Canadian dollar both contributed positively to performance as the dollar’s ‘safe haven’ status was boosted by the strong performance of the US economy. The Canadian dollar struggled as central bank officials stated that the fall in the oil price would dampen growth. In contrast, the Norwegian krone weakened versus the UK pound as money markets speculated on the impact of reduced oil revenues in Norway, and the Norwegian Central Bank cut interest rates. Decreasing inflation expectations in the UK, also meant the short UK inflation idea boosted returns. Finally, fund performance captured increased volatility in Chinese equities and increasing levels of volatility in Asian equities when compared to the US equity market.

J O Hambro – John Wood

UK & General Progressive

Jeremy Grantham, GMO, (quoted in Barron's, October 2008, in response to the question: "Do you think we will learn anything from this turmoil?")

Depressingly, a mere six years on, Grantham's observation from the darkest days of the global financial crisis seems all too prescient. History may rarely repeat itself exactly but it does frequently rhyme. Yet its lessons seem to have been forgotten remarkably swiftly by many in the investment community.

What we said in our June 2007 UK Opportunities monthly factsheet, extracted below, applies just as well today in the early days of 2015 to both current market conditions and our current portfolio positioning:

"Given our long-standing caution, we are often asked how defensive our portfolio will be in the event of an equity market downturn. We find this question very difficult to answer because it depends on what leads markets downwards. Despite our high cash balance the main risk to our short-term performance would be indiscriminate selling..." (Based on liquidity not fundamentals).

"Our major concerns are about the financial markets rather than the real world. As we have noted previously, we are wary of the widespread use of relative valuations, M&A multiples read-across and the lack of differentiation when applying risk premia. We have therefore worked very hard to ensure that we are exposed as little as possible to the unwinding of the carry trade (the pursuit of yield) in its broadest sense, meaning any beneficiaries of excess liquidity and low yields. For this reason we own few financials (in January 2015, none), no miners (we still own no miners) and have sold the majority of our positions in utilities (we only own National Grid in January 2015). Instead, we have bought companies with non-cyclical top line sales growth."

Magellan – Hamish Douglass

International Equity

During the month we reduced the position in Target after recent strong performance. We also reduced the Fund’s financial holdings and re-invested the proceeds in Home Depot and Google.

On 31 December 2014, the portfolio held investments in 26 companies, with the top-ten investments representing 49.66% of the portfolio’s total assets. The portfolio held 10.79% of its assets in cash at the end of the month.

The portfolio is currently positioned to take advantage of the following major ongoing investment themes:

Internet/e-commerce convergence: There are a number of internet enabled businesses that have very attractive investment characteristics with increasing competitive advantages.

The move to a cashless society: There continues to be a strong secular shift from spending via cash and cheque to cashless forms of payments, such a credit cards, debit cards, electronic funds transfer and mobile payments.

US interest rates normalising: As the US economy recovers, the Federal Reserve will increase the federal deposit rate and begin to reduce the size of its balance sheet.

US housing recovery: A recovery in new housing construction should drive a strong cyclical recovery in companies exposed to US housing and also provide a strong boost to the overall economy.

During the month, the portfolio returned +0.20% in sterling terms, before fees, this compares with a benchmark return of -1.18 %, giving relative performance of +1.38%.

In sterling terms, the largest contributors to performance were Lowe’s (+0.44%), Oracle (+0.32%) and Home Depot (+0.21%). The largest detractors from performance were Yum! Brands (-0.24%), Sanofi (-0.19%) and Lloyd’s Banking Group (-0.17%).

December was an eventful month for macro news. In Europe there was frustration over a lack of action from the ECB to kick start the economy, while ‘Grexit’ once again reared its head as a new year election loomed in Greece; the anti-austerity Syriza party continues to gain traction, putting it on collision course with international creditors. Brent crude oil fell below $60/barrel – its lowest level since May 2009 – while many Emerging Markets (EM) saw weakening currencies and rising sovereign bond yields. Russia is an obvious case study.

All this translated into generally poor returns for equity investors (the exception being the remarkably resilient US), especially in those stocks with exposure to EM. In this respect, not holding BAT, Diageo, BHP Billiton and Glencore served your portfolios well. Conversely, consumers of fuel were beneficiaries: Carnival and Ryanair were strong performers. Our holdings in large cap Pharmaceuticals held back performance a little: GlaxoSmithKline has failed to convince investors of its replacement drugs for Advair, the respiratory blockbuster, and of its consumer healthcare business acquisition, from Novartis. AstraZeneca succumbed to profit taking after enjoying a very strong rally this year, partly driven by Pfizer bid speculation.

We have been adding selectively to areas that we feel are clear beneficiaries of a lower oil price, at the expense of Integrated Oil companies and some Utilities. We remain cautious on EM, where an economic slowdown is unfolding as expected.

Manulife – Paul Boyne & Doug McGraw

Global Equity Income

The strategy’s stock selection within the financials and materials sectors contributed to performance over the period. Individual contributors included Amcor Limited, Catlin Group Limited and United Technologies Corporation.

The strategy’s stock selection within the consumer staples and health care sectors were detractors from performance over the period. Individual detractors included Japan Tobacco Inc., British American Tobacco plc. and Samsonite International S.A.

Orchard Street – Chris Bartram

Property Unit Trust

The portfolio valuation as at 31st December 2014 was up 0.7% month on month.

We have completed the acquisition of a portfolio of three industrial estates in Camberley, Hounslow and Thurrock for a purchase price £51.1m representing an initial yield of 5.9%. The multi let estates are all within close proximity of the M25 and have a wide diversity of income streams.

We have completed the acquisition of Vue Cinema in Cambridge for £9.6m reflecting an initial yield of 6.6%. The asset, with 7 years remaining on the 15 year lease, is in a strong town centre location with an increasing student population.

We have completed the disposal of two small assets in Leeds and Cheltenham for £9.4m in total, both ahead of valuation.

The portfolio vacancy rate is 3.8% compared with 8.7% for IPD and the initial yield on the portfolio is 5.5% which compares with 5.4% for IPD.

Property Life and Pension funds

The portfolio valuation as at 31st December was up 0.8% month on month.

We have completed the acquisition of a portfolio of industrial estates in Hemel Hempstead, Frimley and Woodford Green for a purchase price of £65.6m representing an initial yield of 6.1. There is strong occupier demand for these locations in the South East reflected in a void rate of just 1%.

We have also completed the acquisition of Trinity Trading Estate in Sittingbourne, Kent for £29.1m. The estate comprises 56 light industrial, manufacturing and trade counters on a 25 acre site with a low vacancy rate.

Asset management initiatives have continued with the completion of a lease regear at the office building at St Andrews Street in London. We have extended the term for a further 10 years increasing the rent above ERV. In addition we have settled a rent review and removed the 2015 break option for another tenant in the building also increasing the rent above ERV.

At the industrial estate at Bilton Way in Hayes we have completed a lease renewal and the letting of vacant space both in line with ERV.

The initial yield on the portfolio is 5.05% compared with 5.4% for IPD and the vacancy rate is 8.2% against 8.7% for IPD.

We remain optimistic on the outlook for European equities. Whilst the market remains anxious about the possibility of Europe ‘sliding into deflation’ the reality appears very different to a ‘stock picker’ who is constantly in contact with many companies, across many different industries, right across the whole region. As we have written many times previously, the recovery in the European economy continues to progress very much as we might have expected. Strikingly, the tone of our meetings with company managements has been generally more positive than even we might have anticipated. A particular highlight has been the recent recovery in Italian advertising spend noted by Mediaset. The telecom companies, furthermore, have become generally more optimistic that price pressure should begin to ease in the future. Most notably perhaps, the economies of the periphery continue to rebound. Spanish house prices, for example, are now rising for the first time in six years. In fact, dramatically improving construction confidence suggests that the Spanish economy could grow by some 3% next year. Credit conditions appear to be improving across the region. The TLTRO and purchases of asset backed securities and covered bonds should help lower bank funding costs, most notably, in the periphery of Europe. The growth in money supply, also, appears to be gathering momentum. The results of the AQR, furthermore, suggest that the financial system is better capitalized than many had feared. Perhaps most unappreciated, the recent, almost 15%, fall in the value of the Euro relative to the Dollar should significantly help support the export sector. The sharp fall in the oil price should likewise help stimulate growth. Some economists have estimated that oil at $50 a barrel could add 0.5 to 1% to European economic growth.

We are, as a consequence, confirmed in our long held view that recovery is gradually taking root across the region – as in Spain – especially in a number of economies which have embraced austerity. From a company earnings point of view, a mixture of recovering revenues combined with stringent cost control and strict capital discipline, should generate surprisingly strong earnings growth. This is at a time when expectations are still framed by fears of a ‘Euro crisis’, and valuations are at mostly at historically extremely compelling low levels. In fact, share prices currently imply that almost 50% of European companies will face declining ROCE’s in the future. Where high valuation levels still prevail, however, is among more internationally orientated companies. These still trade on ‘cultish’ valuations with many investors continuing to put their trust in continuing vigorous emerging market growth. Our company visits suggest, however, that the growth outlook from the emerging world has slowed significantly. We therefore remain committed to more Europe-centred, domestically orientated, companies. These now constitute almost two thirds of our investments. Companies from the periphery of Europe represent 28% of our investments. On a recovery basis, for example, the Italian media group, Mediaset, represents great value. The same holds true for our holdings in Sacyr and FCC. Utilities now constitute 24% of the fund including investments in Orange, RWE and Eiffage. Banks make up a further 23% of the fund. We still believe that the market has failed to appreciate the benefits of a rapid recovery in financial margins coupled with draconian cost cutting and easing regulatory pressures. We have focused on the strongest retail banking franchises such as BNP and Banco Popular where we believe that returns should rather rapidly return to pre-crisis levels. Our favourite growth companies, such as Zodiac and SAP make up the remainder of the portfolio.

Wasatch Advisors – Ajay Krishnan

Emerging Market Equity

In December, the portfolio continued the pattern we typically expect – lagging its benchmark during weeks in which the benchmark rose, and declining less than its benchmark during weeks in which the benchmark fell. While the net result in December was slight outperformance compared to the benchmark, the portfolio’s outperformance over the entire fourth quarter was much more pronounced.

Oil importers such as India and the Philippines continue to benefit from the falling price of crude. If India’s newly elected government can deliver on key initiatives, we believe the country’s secular growth story may still be in its early chapters. So while the Indian stock market has already had a substantial advance in the past year, we continue to find many companies in India with excellent long-term prospects.

The information contained herein represents the views and opinions of our fund managers and not those necessarily held by St. James’s Place Wealth Management.

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